MARC has issued this rating update in connection with Kinsteel Berhad’s (Kinsteel) announcement on the proposed listing of Perwaja Steel Sdn Bhd (Perwaja). MARC is of the opinion that there is no immediate impact on the MARC-2ID / AID and the AID ratings of Kinsteel’s RM100.0 million Murabahah Commercial Paper / Medium Term Notes Programme (Murabahah CP/ MTN) and RM100.0 million Murabahah Medium Term Notes Programme (MMTN) respectively, and the AID rating of Perwaja Steel Sdn Bhd’s (Perwaja) RM400.0 Million Murabahah Medium Term Notes (MMTN) Programme and their stable rating outlooks.

Kinsteel currently owns 51% of Perwaja which produces direct reduced iron (DRI), steel billets, beam-blanks, and blooms. Perwaja currently dominates the DRI production in the domestic market. Prior to acquiring 51% of Perwaja in September 2006, Kinsteel principally produced long steel products for the construction and infrastructure sectors. Despite turning around the previously loss-making business of Perwaja, the large working capital requirements of Perwaja and its legacy liabilities have affected the cash flow protection measures at Perwaja as well as Kinsteel on a consolidated basis, resulting in higher working capital requirements at both Kinsteel and Perwaja. Proceeds from the listing will be utilised to meet working capital requirements and reduce borrowings at Perwaja.

MARC will closely monitor the developments and review their impact on the ratings once there is more clarity regarding the effect of the listing on the financial profiles of both entities.